Volume 15, Issue 6- November/December 2013
Which Provisions Do Insurers Honor?
Contrary to how the insurers and their third-party administrators (TPAs) are controlling the consumers and the auto glass industry, the auto insurance policy is not an HMO or PPO. It is an indemnification contract with a payment of loss provision. Is the insurer covering the three main policy provisions, which include A) indemnification, B) payment of loss and C) like kind and quality?
Under the payment of loss provision, the insurance company (insurer) has two options with auto glass: A) To be the contractor; or B) to pay money for the repair in order to indemnify the consumer’s loss. So what does that mean?
Under Option “A,” the insurance company has the right to take the car and get it repaired; they negotiate the price, product and terms with a repairer, pay the repairer and then give the consumer back his car. With this option the insurance company is the contractor, so it is a party to the repair contract. With this option, though, comes liability for anything that goes wrong and the company is responsible for the warranty. Because of the liability that comes with this option of being the contractor, insurers never choose this option. Since the insurer has not chosen to be the contractor, by default neither is the TPA.
Instead insurers choose option “B,” which is to pay to have the vehicle repaired (repaired with auto glass means a repair or replacement). With option “B,” the insurance company is not a party to the contract. The consumer is the contractor. The contract is between the consumer and the auto glass shop. By the insurers own choice the insurer is not a party to this contract so they have no right to dictate the price, criterion, product or terms. Under this option, per the policy, the insurer is to pay a fair and reasonable price to indemnify the consumer’s loss. The auto glass shop is not a party to this contract between the insurer and consumer. These are two separate contracts. The first contract is between the consumer and the auto glass shop. The second contract is between the consumer and the insurance company.
Under option “B,” the insurer often short pays the claim under the “limit of liability” clause, stating that the company could have had it done cheaper. History has shown, however, that case law, such as in Minnesota, has denied this ploy because the insurer could have chosen option “A,” but did not and is not paying a fair and reasonable price. Case law has shown that the consumer is not expected to have the bargaining skills and power of an insurance company. If the insurer thinks the price is too high then it can sue the repairer for fraud.
OEM Versus Aftermarket
How is it that seven different AGR windshields with multiple manufacturers and different qualities that range in price from $59 to $249 for the auto glass shop all have the same NAGS price? Since insurance pays the same large percentage off of this suggested price no matter which windshield is installed (according to Mitchell, the NAGS price is a fair and reasonable price) the only way a consumer is going to get anything but the $59 windshield is if the shop eats profit. The only way the consumer is going to be indemnified is if the auto glass shop pays to do it because the insurance company is not and will not.
Do you think that auto glass shops are going to disclose to the consumer the different windshields available? They will not because the shop will have to pay more for the quality. This forced discounted insurance pricing means the consumer is getting the cheapest aftermarket windshield that the shop can purchase. A recent study in Colorado found that approximately 11 percent of OEM windshields were edge-cracked; however, 22 percent of aftermarket windshields were edge-cracked. The study even found that 35 percent of one particular aftermarket brand was edge-cracked. Is installing a windshield that is two to three times more likely to edge crack than the OE version really “like kind and quality?” Is that indemnifying the consumer’s loss?
So which of the policy provisions are the insurance companies honoring? None.
Richard Campfield is the National Windshield Repair Association president, as well as the founder and president of Ultra Bond Inc. in Grand Junction, Colo.